🔗 Share this article

“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a devaluation of the national currency after the voting concludes. The president has imposed a cap on the currency to control soaring inflation and now it remains artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly racked by debt defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and now Milei’s conservative populism.

Milei is a textbook populist: captivating, unconventional, vowing muscular measures to wrestle back command of the economy from traditional elites on behalf of the people.

These key characteristics are shared by his political partner in the United States, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and severe budget reductions – had won plaudits from international lenders for contributing to bring inflation in check. The programme has something in common with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be defeated, regardless of the consequences.

However investors started to doubt in Milei’s radical project lately after a shaky result in provincial elections and a series of graft allegations. Only massive financial intervention from abroad has prevented what looked set to become a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to implement the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans in writing except for proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem in flux: concerned about being accused of proposing reckless spending, he lately abandoned a promise to make large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to depict the populist as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by very wealthy people demanding lower taxes and deregulation, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, research indicates neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result from the study, however, is despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus four for mainstream politicians.

In other words, it is not clear that even when their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.